For Airlines, Fees Become Lifelines

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While many airlines are working furiously to maximize revenue from every component of air travel, some companies in the premium space view such unbundling as dangerous. Just as luxury automakers package their highest offerings into their top-of-the-line models, many airlines recoil from any initiative that could be construed as "nickel-and-diming" passengers. "We must not hurt our product and our brand, and it's very difficult" to chase new revenue sources, says Patrick Brannelly, vice-president for passenger communications and visual services at Dubai-based Emirates. "To us, the best way to generate revenue is attracting people to our brand who appreciate quality." Emirates and other premium airlines use duty-free sales to generate some extra revenues but say there's little else onboard that could produce money without degrading the brand. That's why courting affluent travelers through a luxury "experience"—and the higher fares that commands—is critical. "Service is revenue," Brannelly says.

where à la carte sales get tricky

Because low-cost carriers market directly to the consumer, almost exclusively through their own Web sites, it is far easier to tack on additional services and products at the time of purchase. Malaysia-based AirAsia X, for example, brought in $2.75 million last year from sales of pre-order meals to passengers on long-haul flights such as London to Kuala Lumpur. That kind of retailing has proved difficult to integrate into computer systems used by travel agents and online sellers such as Orbitz (OWW) and Expedia (EXPE). "It's a wonderfully confusing time in the market, with the tug and pull of à la carte revenue but the difficulty of implementing it," Sorensen says.

Pre- and in-flight sales may not be the only way airlines can boost their ancillary income. A fledgling revenue-development experiment called Privilege Outlet invites customers of its client airlines to buy luxury goods such as designer shoes and sunglasses online at reduced prices. Privilege Outlet client companies—mostly budget carriers in Europe, such as Prague-based Smart Wings and Royal Air Maroc's Atlas Blue—net about $2.40 per passenger purchase. Buyers accumulate points toward the airline's frequent-flier program. "There's a relationship created between the passenger and brand," says Raphael Bejar, CEO of Airsavings, a Paris airline consulting firm that developed the model.

Besides, says Bejar, there isn't much left on the plane to collect revenue on. "Charging for blankets, toilets? These are jokes," he says. "The passenger doesn't see any value in this. If you need to charge for a blanket, passengers will just bring another sweater."

Deprez is a reporter for BusinessWeek.

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